The shrinking gap between group and retail premiums is providing opportunities for advisers when it comes to retail insurance policies within superannuation, according to IOOF.
IOOF says one of two main ways clients can hold retail insurance in super is by establishing an insurance-only super fund independent of the member’s super fund with the insurer’s trustee owning the policy.
IOOF insurance specialist Peter Stathis said this method increases the complexity of insurance arrangements, but it also increases the risk of an inadvertent policy lapse.
“With insurance cover held in a different super fund the possibility of a lapse is naturally higher,” Mr Stathis in a statement.
“If a member changes jobs and starts contributing to a new super fund, there’s a real risk the original super fund eventually won’t have the funds to cover partial rollover contributions.”
IOOF suggests another approach is to take insurance cover on the client’s regular super fund.
The advantages are that the premiums are deducted automatically from the client’s cash account, generally monthly, half-yearly or annually, reducing the likelihood of an inadvertent policy lapse, IOOF said.
It added that, when integrated in a platform, pension options are available, which are not available as standalone super-held policies, meaning the death and total and permanent disability (TPD) benefit may be converted to a pension account for the beneficiaries or the member.